Teaching assistant diplom Essay

Introduction

In this essay I will be analysing what influence the recession has had on consumer behaviour and the cause behind those changes in performance. A recession is defined as two straight quarters of depressing economic growth, as measured by the gross domestic product (GDP) of the country. Consumer behaviour can be defined as ‘The study of when, why, how, and where people do or do not buy products. The recent recession began in December 2007 and produce from the USA‘s advance market, mortgages were being proposed to people who simply could not afford to include one. As a result the property market collapsed and the economic down turn rapidly spread to the rest of the world’s financial system, therefore there is now a worldwide recession. With the banking world in turmoil there have been effects for other industries. For example, the car industry is one of the most terrible hit industries because banks are now being particularly alert about lending capital. This means that whilst a customer may wish a new car they are unable to fulfil those needs because there is no way of them generating the resources which would allow them to make the purchase. This can be demonstrated by the fact Toyota has suffered a loss of $4.4 billion4. It is Toyota’s first loss in 59 years which added highlights how bad the recent recession is. Furthermore, the fall down of the property market has not just changed the behaviour of consumers in this industry although, it has also had knock on affects. For example, because less people are being contributed mortgages, due to the fact a 20-30% deposit is needed, there is usually less demand for new houses to be built because they basically would not be bought in the current climate. The sale of fewer houses then affects furnishing stores as there are hardly any consumers who need new furniture. Therefore, it is important to realise that consumer behaviour is related between industries.

Impact of recession on consumer

Consumer behaviour will also change during a recession depending on demographics which include age, gender and occupation. Research conducted by Price Water House Coopers put forwards the most influenced age group is the 60-65+ year olds who are retired or come up to retirement, followed by 18-24 year olds, then 45-60 year olds and ultimately 25-44 year olds be likely to be the least affected by the downturn. The worst affected are the 60-65+ year olds because the UK government implements an economic policy. This means the government regulates the money supply and interest rates to direct the economy. As OAP’s rely on their savings to supplement their pension it means in the current incidents they are earning significantly less money than they were in prior years because interest rates are currently at 0.5% contrasted with 4.5% in 2005. This clearly has huge affects on their buying behaviour because they are forced to create cuts which they may not want to make but have to go through requirement due to major reduced disposable profits. With idleness soaring during a recession this affects consumer behaviour as individuals become more alert about their spending due to the fear of unemployment or unemployment.

During the current recession it is the 18-24 year olds who are bearing the most with unemployment. However, with unemployment rates presently at 7.8% the increase in cautiousness, and the alarm of unemployment is not isolated to purely this age group as individuals who have seen friends, family or colleagues lose their jobs share the same sentiments and fears that they could be next. This has a huge impact on consumer confidence and therefore consumers will look to reign in their spending. Consumers adjust their frame of mind to being more adjusted towards saving money rather than spending money because of the uncertainty which surrounds their future. This involves the consumer’s behaviour towards products. Luxury products such as top of the range food, cars, clothes and perfumes etc are similarly to see sales drop spectacularly as consumers look for methods of decreasing their spending whilst maximising how far their budget goes. For example, an average family may choose to the drop brand level of food for their weekly shop. So rather than buying the Tesco’s finest variety they would buy the Tesco Value range. Research proposes that on average you can save 33% for each product for a one level drop.

For a family hit by the recession this would be a major saving and this emphasizes how when times are hard value is the most vital factor for the consumer and their behaviour will return this. During a recession many consumers are forced to down grade their preferences in order to make living monetary viable. By staring at the performance of Domino’s pizza it is evident to spot that consumers are changing their activities. Domino’s pizza recorded a 20% rise in returns for the first half of 2009. This is an outcome of cash strapped families opting to stay in and order takeaways as a form of a treat rather than eating out at restaurants and pubs. This means the restaurants and pubs are experiencing the brunt of the change in the recession as equal to 75% of British family’s say they will avoid equally eating and drinking out of the house. This does not however mean that households are cutting alcohol out of their life. Instead British households are choosing to drink at home with the average spend per household thought to be £35 per week. So the consumers behaviour is changing in the form of where they purchase their products rather than what they are purchasing in this case.

Conclusion

On the whole, it is enormously vital to recognise that consumer behaviour is affected by the recession. However it must be noted that the changes in consumer behaviour are very much charge on the industry and products concerned. This is underlined by the aforementioned points, so for example the car industry, construction and property market were the most unhelpfully affected even as industries which allow diversion benefit from the recession i.e. the entertainment sector and the cinema.

Finally, consumer behaviour will evermore face affected. It will be affected depending what stage of the life cycle the country is at, therefore the only way to reduce the adverse affects and take benefit of the positive affects is for businesses to be flexible. These way businesses have the best opportunity of helping consumers to get equilibrium in the homeostasis see-saw which is more and more difficult to achieve in a recession as consumers face more limitations.